A Point of Emphasis
For each new sports season, whether that is the NFL or the NBA, the officiating bodies get together and decide on “points of emphasis.” Based on last season, they will look to emphasize certain rules to help (1) protect the players, (2) maintain the flow of the game, and (3) uphold the purity of the game.
As we start a new year, a new season, here at TOM I wanted to express a point of emphasis. The original intent of TOM was always to present simple financial truths in a palatable manner. I believe one of my greatest strengths – what I have to offer our readers – is the simple fact that I personally have had thousands of money conversations with real people every day. From my vantage point, I can pick up common themes around misconceptions and mistakes that I can then bring to TOM for discussion. Relevant topics impacting actual investors.
With that in mind, my point of emphasis for 2025 will be practical application. It’s one thing to provide entertaining anecdotes and thought-provoking charts, but I’d like to help you all be doers of the word.
So, yes, 2025 will be all about what’s going on in the real world of finance and what you can actually do about it within your own wallet.
Diet Season
A new year also often means a new diet for many Americans. The extra pounds picked up during the holidays incentivize us to clean up our diets a bit. I call it the holiday pudge nudge.
What you eat has a big impact on weight gain or loss. Essentially, it’s calories in, calories out, so if you can consume fewer calories than you burn, then you will experience weight loss.
So, what’s on your plate, how much is on your plate, and how often you make a plate will all impact that daily calorie count. This concept analogizes well with personal finance. Your portfolio plate will be made up of portions of stocks, bonds, cash, real estate, etc., and those portions should be tailored based on your own goals.
Perhaps you will fill your plate up with more veggies and less sweets, or increase the portion of protein and decrease that of carbohydrates, whatever that might be the allocations matter for your goals. What doesn’t matter as much is where you get those foods from. Whether you shop at this supermarket or that grocery store will have much less of an impact, if any, on accomplishing your goals. Sure, if you are trying to meal plan at 7-11, you’ll probably have a tough time, but I think you get my point.
Too Many Grocery Stores
Personal finance is incredibly similar in this vein. The proportions of assets, what we call asset allocation, are incredibly important, but the proprietor housing those allocations is much less important. Again, you don’t want to use the 7-11 of custodians, but a well-established, respected custodian – there are a handful of them – will suffice.
Here’s the simple truth: diversification of assets is incredibly important, while diversification of custodians is not. Yet, in nearly every money conversation I have, I come across investors with way too many banking relationships. It’s like making a grocery list and then trying to pick up those items at ten different grocery stores. Consolidation is key.
How’d it Happen?
So, why is this such a common theme? It’s simple: just look at your garage. You’ve lived a long life, and you’ve accumulated things along the way. Every canoe and baseball mitt probably has a good story behind it. We just tend to acquire things more often than we tend to do our spring cleaning. So, things pile up.
With our money, we open a new account relative to a mortgage we picked up, or our new employer requires us to use this custodian for their 401(k) plan or perhaps that particular bank was offering a CD promotion that caught our attention. In the blink of an eye, we all of a sudden are a customer of ten different banks.
For some of us, we even did this intentionally. Perhaps the recent bank failures gave us a spook, so we felt inclined to diversify our relationships to solve an FDIC or SIPC concern. It’s not a concern of mine personally, but it’s another discussion for another day.
However we got here, we simply ended up with more accounts than we needed.
The Unintended Consequences
The important question here is why should we care about this particular topic. In all my money conversations, why is this the topic I choose to kick off 2025 with? I chose this topic because it’s common to many, easy to identify, can cause some unintended consequences, and often, one needs a nudge to help get this all cleaned up.
Let’s discuss some of those pitfalls to having a plethora of account relationships. We’ll start simple, it makes for a whole lot of passwords to remember and upkeep, as well a lot of applications on our phone. For security reasons, it makes us a whole lot more exposed and takes a toll on our memory just to recall where everything is. I can’t tell you how many conversations I have where people head scratch to recall if there is “anything else out there.” It’s like watching a dog with amnesia trying to dig up his bone in the backyard.
Beyond organization, the spread out nature of accounts also makes it difficult for planning and designing. One of the first steps in our portfolio design process is seeing how all the parts currently fit together. Understanding how much an investor has in reserves (cash and cash equivalents) is an important part of the process, as well as getting an idea of current stock and bond allocations. Drawing this all together across multiple relationships makes this difficult to measure at one point in time, as well as ongoing monitoring. Even an aggregation tool (application) stumbles as account feeds go stale or sometimes won’t connect at all.
Beyond these reasons, just ask any executor of an estate if they have a preference on whether mom and dad would’ve had two or three account relationships versus nine or ten. Each institution requires its own paperwork, process, notaries, medallion stamps, etc. It is quite an undertaking, and the complexity is amplified with each new institution introduced. One just hopes that all of the titling is accurate across these custodians, too, as one miss or hiccup will spoil even the best of estate plans. I’ve seen many cases where a trust existed to avoid probate, yet an account was opened outside of the trust, which unfortunately ended up in probate.
Again, beware of the unintended consequences.
Next Steps
Hopefully, I’ve thoroughly convinced you that you need a consolidation plan. Please know that I am not advocating that you have one relationship to cover all of your banking, borrowing, and investing needs, although for some, that may be possible. I am encouraging you to reduce the relationships down to the minimum that is feasible for your situation. My family frequents two grocery stores, and this satisfies all of our needs – for some families, that number will be one; for others, three, but it shouldn’t be ten.
Here’s where it’s going to take a bit of elbow grease. Once you determine where the mortgage is, the credit cards, the brokerage accounts, the retirement plans, the checking account, etc., you’ll need to start consolidating and closing accounts (where necessary and advised). This will take some heavy lifting on the front end, so it’s not for the faint of heart. The garage didn’t stack up like this overnight, so you’ll need to have that spring-cleaning enthusiasm when trying to tackle this project.
Yet, as I said, this issue of too many accounts is common to most and has a simple solution, which makes this the perfect topic when we are seeking practical applications for our money truths. An opportunity for us all to be doers of the word.
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I will leave you there for now. I hope that 2025 shower you with many financial blessings, and I hope your friends here at TOM can be a helpful resource to you along the way.
Trevor Cummings
PWA Group Director, Partner
tcummings@thebahnsengroup.com
Blaine Carver
Private Wealth Advisor
bcarver@thebahnsengroup.com
